How a Prepaid Credit Card Could Affect Your Credit Score

It’s a common misconception, but prepaid cards generally don’t impact your credit score. Since you’re spending your own pre-loaded funds, there’s no borrowing history for card issuers to report.

1. Obtain a Credit-Building Card: While prepaid cards don't build credit, secured credit cards do. To start, you apply for a secured card and provide a refundable cash deposit, which typically becomes your credit limit.
2. Use the Card Responsibly: Make small, regular purchases with the card. It's crucial to keep your balance low relative to your credit limit, as this demonstrates responsible credit utilization to lenders.
3. Make On-Time Payments: Pay your bill on time and, ideally, in full every month. Payment history is the single most significant factor in determining your credit score, so consistency is key.
4. Allow for Reporting: The card issuer reports your account activity—including payments and balances—to the three major credit bureaus. This creates a record of your financial reliability.
5. Build Your Score Over Time: With several months of positive reporting, your responsible usage will be reflected in your credit history, gradually helping to build or improve your credit score.

How Much Will a Prepaid Credit Card Affect Your Credit Score?

Generally, a standard prepaid card won't impact your credit score at all, for better or worse. Here are the key factors to consider:

• No Credit Reporting. Prepaid cards do not report your activity to the three major credit bureaus. This means using one won't help you build or improve your credit score over time.
• No Debt Incurred. You load your own money onto the card, so you are not borrowing from a lender. Since no debt is created, there is no payment history to report.
• Different from Secured Cards. Do not confuse prepaid cards with secured credit cards, which require a cash deposit. Secured cards report to credit bureaus and are designed to help build credit.

How You Can Avoid a Prepaid Credit Card Affecting Your Credit Score

Understand Their Function

Prepaid cards operate on a "pay-before-you-use" basis, meaning you're spending your own money. Since there's no credit line or borrowing involved, issuers don't report your activity to the major credit bureaus. This prevents any impact, positive or negative, on your credit score.

Opt for Credit-Building Tools

If building credit is your primary goal, consider a secured credit card instead. Unlike prepaid cards, these require a deposit but report your payment history. Responsible use of a secured card can help establish or improve your credit profile over time, making it a strategic choice.

Choose the Right Card to A Prepaid Credit Card

Improving your credit score is an achievable goal that can significantly boost your overall financial health, affecting everything from loan terms to credit card approvals. By following a few proven methods, most people can see meaningful changes within a few months of consistent effort.

• Monitor Your Credit Reports. Regularly obtain your free credit reports from the three major bureaus to check for inaccuracies, dispute errors, and track your progress.
• Establish Automatic Bill Payments. On-time payments are the most significant factor in your score, so setting up automatic payments is a simple way to ensure you never miss a due date.
• Reduce Your Credit Utilization Ratio. Aim to keep your credit usage below 30% of your total available credit by paying down balances or requesting credit limit increases.
• Become an Authorized User. Being added to a credit card account with a long history of on-time payments and low utilization can help improve your own credit profile.
• Limit Hard Inquiries. Avoid applying for too many new credit accounts in a short period, as each application can cause a temporary dip in your score.

The Bottom Line

Prepaid credit cards are not linked to credit bureaus, meaning they neither build nor harm your credit score. They function as a payment method, not a credit-building tool.

Frequently Asked Questions

Do prepaid cards help build credit?

No, prepaid cards do not build your credit history. Since you are spending your own pre-loaded money, there is no credit activity to report to bureaus.

Is a credit check required for a prepaid card?

No, you do not need a credit check to obtain a prepaid card. Approval is not based on your credit score since you are not borrowing money.

Are prepaid cards reported to credit bureaus?

No, activity on prepaid cards is not reported to the three major credit bureaus because you are not borrowing money or making monthly loan-style payments.